Like any other job, trading can be learned and taught; however, in order to hone a skill, it takes both time and effort. You see, the forex market has its own rules and abiding by them may take some serious effort on your part. With this in mind and in order to facilitate this process a bit, there are four things you absolutely have to know in order to embark on the road of growing as a forex trader. Some of them you might already be familiar with, but just to be sure, here is the big four.
1. Set trading orders
The first problem with forex trading is the fact that it starts as a business, but then, for some people, it turns into a gamble-like activity. Instead of being governed by reason, facts, figures and graphs, people start relying more on their intuition, even luck. This is where things tend to get messy. Now, in order to get back on track, you need to find a way to automate your trading system as much as you can and the only way to do so is to set stop orders.
What this means is that you need to set a gain or loss percentage at which you are going to back out. In most cases, traders set their stop loss at about 1 percent of their entire net account worth, which means that they can never lose more than 1 percent of their assets in a single trade. As for the stop gain, it is recommended to set this somewhere below 6 or 7 percent of your account’s worth. In this way, you can remain profitable even while having only 30 percent of successful trades, which is more than favorable for your long-term profit.
2. Trade through the right platform
In the past, in order to trade on the stock market or a foreign exchange market, you had to find a broker. Nowadays, finding a broker means finding a reliable platform to trade through. Sure, the essentials may remain the same; however, your criteria when it comes to the metrics required to choose the right platform for online trading are not.
For starters, you need to worry about things like latency. As we explained earlier on, in the world of forex trade you have to act quickly. For this to be a sure thing, your platform of choice must be able to provide latency-free service. Apart from this, there are some other features, as well, you need to worry about, yet some of them can’t be seen until you actually start collaborating with a platform. Therefore, it is vital that a platform offers a trial period, where you can determine if they offer terms and features that are to your liking.
3. Day trading or position trading
One of the greatest problems with a lot of forex traders is that they are literally losing sleep over their investments. We’re not even talking about the remorse over the losses of the previous day, but the risk of an ongoing investment that they’re currently worried about. This is why you might want to opt for day trading. What this means is that you never hold a position overnight. You buy and you sell, all in one day, which also means that your loss and gain margins are significantly smaller.
Opposite to this is position trading, seeing as how your goal is to invest in a steady growth of a certain trend, rather than to make money on fluctuations. To simplify, it’s like betting who’s going to win the game, versus betting who’s going to win the championship in the end. The problem with position trading is the fact that you need to be able to afford to let your money to sit for a prolonged period of time. Moreover, whereas day trading provides you with immediate results, be they good or bad, with position trading you need to invest both money and time into something that might not pay off in the end. For this reason alone, day trading currently seems to be the predominant trading style.
4. Patience is key
One last thing you need to keep in mind is the fact that you need a lot of patience in order to succeed at this game. As we already mentioned in the stop order section, you will both loose and gain a couple of percent of your account in a single trade (possibly even less), which means that it will take a while until you are able to earn some serious capital this way. Still, gaining experience is an arduous task and a slow process. Therefore, make sure to keep a detailed log and patiently study your previous successes and failures. Learning from your own mistakes may be expensive, but it is by far the most reliable didactic method.
At the end of the day, you need to keep in mind that trading is not a lottery and there’s no such thing as an overnight success. This is a business and as such, you need to have a game-plan (trading style), infrastructure (stop orders and platform) and some patience. Only in this way will you be able to improve your trading skills and grow as a trader.